Comments on: Two Monday Thoughts About Prosper

By: Irina

Irina — Thu, 07 Feb 2008 20:46:43 +0000

LazyMan, I actually want to ask your opinion about a borrowing idea from Prosper, as oppose to lending ideas…

I have a perfect credit score, or so I think. I have no debt, except for my mortgage and I never late on any of my bills. I want to borrow on Prosper, say $10,000, and let the lenders know that this money will be used for sports wagering by my husband with the reference to his track record: http://mylifeandart.typepad.com/wagering

I don’t really have to borrow this $10,000. I have the money. My goal is to create a public record (an open discussion) that intelligent sports wagering can be funded and returns can be good. Yes, sports wagering is a high risk proposition, but I know my husband and I am willing to take the risk.

Do you think Prosper would allow a loan with such description?

By: One 2 One Lending

One 2 One Lending — Mon, 14 Jan 2008 14:12:48 +0000

IF YOU GO AHEAD, PUT ALL IN WRITING
It’s never easy to say no to a customer. But lending a financial hand can leave you out of money and out of sorts with your customers.
According to One 2 One Lending, a company that helps formalize loans between individuals, about 14% of private loans end up in default, compared with just 1% or so for bank loans.
To protect you financially, make sure you don’t fall for the top four costliest mistakes individuals make when lending money to customers:
• Not being suspicious enough. When someone comes to you for a loan, your first thought should be: Why? That is, why do they need the money, and why are they asking you for help?
You also need to wonder hard why they haven’t been able to get a loan from a more conventional source. Point is: There are plenty of folks in the business of lending money. If your customer can’t get money from someone in the lending business, that’s worth two or three red lights going off in your head.
• Lending what you can’t afford to lose. Never lend money that you truly need. The best litmus test before you say yes is to ask yourself if you would be comfortable giving the money away.
• Skipping the formalities. Handshakes are not good enough for sealing a loan agreement. Put everything in writing. In fact, it’s a good way to size up the credibility of the person who needs your money: They should tell you right off the bat that they want to sign a formal loan document with you that spells out the terms of the deal. Once you have it filled out, all parties should sign it in front of a notary; it’s just a nice bit of formality to have in your pocket in the event anything goes wrong. In the document you want to spell out the specifics: What interest rate you will receive, when the payments are due, how much is due with each payment and what penalty will be paid for a late payment.

By: MP

MP — Thu, 13 Dec 2007 04:48:12 +0000

Okay…first I have to say, I started at Prosper, on your Prosper blog entry (I believe the first) and I liked it, which brought me to Lazymanandmoney.com, and then finally to this blog itself.
1. I have it bookmarked already, and that’s pretty good considering I read MSN money religiously and have yet to bookmark that.
2. I just took out a loan on Prosper.com even though I am VERY able to get credit through more traditional outlets, my reason for doing this is I know I’m a little better than my credit score, and with a p2p you get to explain to possible lenders why you might be a “C” instead of a “AA” or “A”. I shot for a lower rate than Prosper recommended I should shoot for…and ended up with even lower than what I asked for. THAT is why people choose Prosper (or p2p’s) over banks. (I reminded of those commercials where the banker flicks the small business loan seeker off his desk…Capitol One maybe.)
3. I too would like to increase my alternative income, and I think Prosper will be one of my first avenues for acheiving this goal.

Keep up the great site LazyMan!

By: Tom

Tom — Wed, 12 Dec 2007 17:57:20 +0000

LazyMan – glad to see you are writing for Prosper and they started a blog. I’ve been writing for Lending Club for a couple of weeks and it’s quite a bit of fun. This is and exciting growth area.

By: William Barnwell

William Barnwell — Wed, 12 Dec 2007 04:35:20 +0000

88% of all loans that go 1 month late,end up defaulting..You don’t have to wait 4 months to figure out defaults..Yes,i have a default..My lender name is 2008

http://www.lendingstats.com/lenders/2008

By: Allan

Allan — Tue, 11 Dec 2007 23:21:20 +0000

And in response to your response to William, have you had any go 4+ late? Then you’ll get a better picture of what your true returns might be… Prosper doesn’t publish estimated returns and the don’t write off accounts until they’re sold.

By: Allan

Allan — Tue, 11 Dec 2007 22:12:02 +0000

Beyond the fact that Prosper is in a state of constant change, how on Earth can we encourage people to dive in now?

I agree that this very well may be the future, but it isn’t the now. Wait it out until someone executes on the idea well.

By: William Barnwell

William Barnwell — Tue, 11 Dec 2007 21:56:30 +0000

Lazy,i would also like to point out that you post that prosper is a revenue stream when all you are doing is returning capital that you invested,with no interest. [Editor's response: I'd like to point out that the IRR lending sheet shows that I've been receiving interest. I use the average number to determine how much of a revenue stream it is. This is the best estimation I've seen anyone be able to do.

By: Lazy Man

Lazy Man — Tue, 11 Dec 2007 19:31:01 +0000

Jack: Of course Prosper counts defaults. It wouldn’t be worth a hill a beans otherwise

By: Jack

Jack — Tue, 11 Dec 2007 18:45:04 +0000

What about defaults? Are defaults counted in the statistics that track return? What if somebody defaults on a loan that has 50% of principal yet to be paid?

By: Johnn

Johnn — Tue, 11 Dec 2007 18:43:07 +0000

I used prosper to finance a large appliance purchase and pay off a couple cards. Prosper does not charge outrageous fees like credit card companies! I fully support Prosper!

By: Lazy Man

Lazy Man — Tue, 11 Dec 2007 17:18:58 +0000

William, just to clarify, I knew the exact number of late loans I have on Prosper. I have admitted many times that I funded a lot of E grade loans. I no longer do this. That’s where almost all of the late loans come from.

I also said that I didn’t know that Lending Stats projection. This is simply because Lending Stats went dormant for a couple of months. It stopped updating stats and I stopped going. I’ve mentioned the too that I’ve used in the past, the IRR spreadsheet.

Billy, if you read the first post on this blog, it was never meant to be p2p lending blog. It was meant to be a record of my financial doings.

By: 112233

112233 — Tue, 11 Dec 2007 16:09:51 +0000

Nice site. Thank you for allowing a serious and balanced discussion about prosper to take place. This is not possible on Prosper’s blogs and forums.

By: Billy Horton

Billy Horton — Tue, 11 Dec 2007 15:52:05 +0000

“I’ve since taken this blog in a more general finance direction” — aww, not getting enough google ad click revenue I see.

By: William Barnwell

William Barnwell — Tue, 11 Dec 2007 15:20:43 +0000

I pointed out to Lazy Man yesterday that his Estimated ROI according to lendingstats.com is -2%

Then he said he didn’t actually know after the fact.Lazy has over 25% of his loans late on prosper.com

Here is the proof..This isn’t meant as a flame to him but he admits to not being up on prosper like he should be.BTW a group of us have posted over 100 comments on the prosper blog & not 1 have made it through moderation.

http://www.lendingstats.com/lenders/TechnologyGuy

[Editor's note: For a variety of reasons I consider LendingStats to be low. As an example, Eric's CC is 2% higher. Also my current strategy tax analysis which shows the power of deferring taxes and paying capital gains rather than income taxes.

By: limeade

limeade — Tue, 11 Dec 2007 04:07:49 +0000

What I’ve gathered is that there are multiple options of how to invest your money. Everyone has to make that decision on their own. You can make money through prosper and the stock market, and you can lose money both ways.

I’m not too interested in Prosper since I have other avenues available to me such as hard money lending.

We all do what we can to get ahead and I wish all luck with their chosen path.

By: RateLadder

RateLadder — Tue, 11 Dec 2007 00:26:12 +0000

When I said “Prosper work” in my comment above I meant his writting on this site about Prosper.

By: Lazy Man

Lazy Man — Mon, 10 Dec 2007 22:27:47 +0000

FMF responses:

1. Yes, the Prosper loan could be BELOW the average. In fact my loans are below that average. I admit that I didn’t know much at the time, but having learned I’m better for it. I also learned some “cool math stuff” along the way. So I took a little hit, but I’m more diversified and going forward I stand a good chance at 12% returns on average.
2. I shouldn’t have said, “up to 11.56%.” I meant to say that’s the agressive automatic portfolio’s average return. It can return more or less. There’s also a conservative portfolio which is around 8.xx%. Of course it can be more or less as well. The point is to compare these numbers with the 10% stock market numbers since both are averages. (Whether you want to dispute Prosper.com’s ability to return those numbers long term, that’s a different story.)
3. “If someone is paying a high rate of return for a loan (which they would have to be in order for you to earn a decent return), it’s likely that they are paying a higher rate than what a bank would offer.” I don’t know why this is the case. Banks have overhead of that loan officer who has to be paid. In this case, Prosper sets up a market equal for both sides and takes the spread. This spread is about 2% (or whatever Prosper’s average take is) where the banks seem to be much more.

It is worth noting that people are good credit risks. While they may be exceptions that’s okay with me. I can pick them out and only invest in those people. I don’t have to worry if 99.9% are horrible, horrible credit risks. That’s really the difference here. The lender isn’t stuck lending to the average borrower. I personally only reinvest my money in people with B credit grades and up (typically an 680 credit score). Typically, though I’m focusing on the A credit grades.

I simply think that Prosper deserves a fair look for a small part of a well diversified portfolio. I never argue that it should be the majority. I’d suggest simply 5%, maybe 10% if you are aggressive. Like many other investments it’s a hedge.